How to Define and Apply Actual Cash Value in a Property Claim
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The Definition of Actual Cash Value
Insurers, working without legislative or judicial direction, created a working definition of the term “actual cash value.”
Insurers recognized that “actual cash value” in a fire insurance policy was designed to establish a dollar value for items of destroyed property that were not new at the time of loss. Since the insurers had no easy means to establish the used value of property, they selected the following as their working definition of “actual cash value”:
Actual cash value is the cost to replace with like kind and quality less physical depreciation. Jefferson Insurance Company of N.Y. v. Superior Court, 3 Cal. 3d 398 (1970).
The working definition, although it did not always provide the complete indemnity contemplated by the insurers and by the various legislatures, was eminently practical. A burned out shell of a house only leaves clues as to what its actual cash value was before the fire. With minimal investigation the cost of actually rebuilding can be readily ascertained. If the insurer paid to its insured the full cost of replacement (since the number was easy to compute) it would violate the traditional concept of indemnity. Payment of replacement cost puts the insured in a better position than he was in before the fire. Deducting from the replacement cost a reasonable percentage representing the physical depreciation, comes as close as possible to providing the insured with true indemnity for the loss.
In Florida, in contrast to a replacement cost policy, actual cash value is generally defined as “fair market value” [Five Solas, LLC v. Ram Realty Servs. (Fla. App. 2021)]
With regard to the value of a damaged automobile Progressive Insurance’s policy stated that “actual cash value is determined by the market value, age, and condition of the vehicle at the time the loss occurs.” [Wilkerson v. Am. Family Ins. Co. (6th Cir. 2021)]
In Illinois, actual cash value is the difference between retail price and depreciation. [Kamin v. Country Cas. Ins. Co., 2021 IL App (3d) 190275 (Ill. App. 2021)]
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Adapted from my book, Zalma on Insurance Claims, Part 104 Available as a paperback and Available as a Kindle Book
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